Because expected inflation is typically positive,we know that
A)the nominal interest rate is generally less than the real interest rate.
B)the real interest rate is generally less than the nominal interest rate.
C)the nominal and real interest rates are generally equal.
D)the real interest rate is approximately equal to zero.

Question

Quizplus · Accepted Answer

Expected inflation erodes the purchasing power of money, so lenders require a higher nominal interest rate to compensate for the loss. The real interest rate is the nominal interest rate adjusted for inflation, so it must be lower than the nominal interest rate.

Because Expected Inflation Is Typically Positive,we Know That